Modified Duration Calculator

Calculate Modified Duration





Formula

To calculate the Modified Duration (MD):

\[ MD = \frac{MCD}{1 + \frac{YTM}{n}} \]

Where:

Modified Duration Definition

Modified duration is defined as the ratio of the change in the value of a security to the change in the value of the interest rate. It measures the sensitivity of the price of a bond to changes in interest rates, providing an estimate of how much the price of the bond will change for a 1% change in yield.

Example Calculation

Let's assume the following values:

Using the formula:

\[ MD = \frac{5}{1 + \frac{0.06}{2}} = \frac{5}{1 + 0.03} = \frac{5}{1.03} \approx 4.8544 \]

The modified duration is approximately 4.8544 years.